INVESTORS TITLE CO

Investors Title Company operates primarily in the title insurance industry, which is highly cyclical and closely tied to residential and commercial real estate activity, home sales, and mortgage lending. The filing notes that real estate activity is influenced by factors such as mortgage interest rates, consumer confidence, economic conditions, supply and demand, and family income levels. The title insurance business is also seasonal, with the first calendar quarter typically having the lowest activity levels and the spring and summer quarters being more active. The company's exchange services business, which provides tax-deferred real property exchange services pursuant to Section 1031 of the Internal Revenue Code, is also affected by seasonal and other factors influencing real estate activity.

The title insurance industry is highly competitive, with the four largest title insurance companies typically maintaining greater than 80% of the market for title insurance in the United States. Key competitive factors include financial strength and size of the insurer, timeliness and quality of service, price, and expertise. Some title insurers have greater financial resources, larger distribution networks, and more extensive computerized databases than the company. For exchange services, competition comes from other title insurance companies and agents, banks, attorneys, and other independently-owned qualified intermediaries, with key competitive factors being price, expertise, timeliness and quality of service, and financial strength.

The company generates revenue primarily through the issuance of residential and commercial title insurance policies, which involve a one-time premium payment with no recurring premiums. Premiums are recognized as revenue at the closing of the related transaction. When policies are issued directly, the company retains the entire premium; when issued through non-wholly owned title insurance agencies, the agency retains a majority of the premium as a commission and remits the net amount to the company. The company also generates revenue from escrow and other title-related fees, non-title services including exchange services and trust services, and investment income from its portfolio of fixed maturity and equity securities.

The title insurance segment, which accounted for 90.2% of total revenues in 2025, underwrites title insurance for owners and mortgagees through two wholly owned subsidiaries, Investors Title Insurance Company (ITIC) and National Investors Title Insurance Company (NITIC). ITIC is licensed to write title insurance in 44 states and the District of Columbia and currently writes as a primary insurer in 21 states and the District of Columbia, primarily in the eastern half of the United States, and as a reinsurer. NITIC is licensed in 20 states and the District of Columbia and writes as a primary insurer in Texas and as a reinsurer for ITIC. Net premiums written were $212.6 million ¹ in 2025, with direct operations contributing $61.9 million ² (29.1% ³) and agency operations contributing $150.8 million ⁴ (70.9% ⁵). The largest sources of premium revenue by state in 2025 were North Carolina at 35.3% ⁶, Texas at 27.1% ⁷, Georgia at 8.6% ⁸, South Carolina at 8.1% ⁹, and Florida at 6.4% ¹⁰ of total premiums written.

The exchange services segment, operating through Investors Title Exchange Corporation (ITEC) and Investors Title Accommodation Corporation (ITAC), provides services in connection with tax-deferred exchanges of like-kind property under Section 1031 of the Internal Revenue Code. ITEC acts as a qualified intermediary, coordinating exchange aspects of real estate transactions and holding exchange funds, while ITAC provides services as an exchange accommodation titleholder for parking transactions, including reverse exchanges and build-to-suit exchanges. Revenue is derived from fees for handling exchange transactions and a portion of the interest earned on client deposits. The company also provides management services to title insurance agencies through Investors Title Management Services (ITMS) and investment management and trust services through Investors Trust Company, which had external assets under management of approximately $741.0 million ¹¹ as of December 31, 2025.

During the fiscal year, the company purchased no shares of common stock under its repurchase plan. As of December 31, 2025, there was authority remaining under the plan to purchase up to an aggregate of 413,177 ¹² shares. The company paid total dividends of $10.56 ¹³ per share in 2025, including a special cash dividend of $8.72 ¹⁴ per share in the fourth quarter. Capital expenditures were approximately $5.6 million ¹⁵ during 2025. The company also completed an acquisition of a subsidiary for $4.5 million ¹⁶ during the year.

Total revenues for the fiscal year ended December 31, 2025 were $272.8 million ¹⁷, compared to $258.3 million ¹⁸ in 2024 and $224.8 million ¹⁹ in 2023. Net income was $35.2 million ²⁰ in 2025, compared to $31.1 million ²¹ in 2024 and $21.7 million ²² in 2023. Diluted earnings per common share were $18.57 ²³ in 2025, compared to $16.43 ²⁴ in 2024 and $11.45 ²⁵ in 2023. The after-tax profit margin was 12.9% ²⁶ in 2025, compared to 12.0% ²⁷ in 2024 and 9.6% ²⁸ in 2023.

The company's growth strategy involves expansion into new geographic locations and further penetration into established markets through new or existing agents, or through acquisitions or joint ventures. The company evaluates nonorganic growth opportunities, such as mergers and acquisitions, from time to time in the ordinary course of business. The Commercial Services Division of ITIC markets the services offered by ITEC and ITAC to its commercial clients, and marketing of tax-deferred exchange services has been incorporated into the marketing of the core title products.

The company anticipates that approved rate adjustments will have a favorable net impact on premium revenues in future reporting periods. The Texas Commissioner of Insurance approved a 6.2% ²⁹ reduction in title insurance rates effective March 1, 2026. The North Carolina Department of Insurance approved a 9.4% ³⁰ rate increase effective October 1, 2025, and the Ohio Department of Insurance approved a 9.0% ³¹ rate increase effective January 1, 2026. The Georgia Insurance and Safety Fire Commissioner approved a rate increase effective July 1, 2024, which the company estimates increased its revenues by approximately 17% ³².

The company's operating expenses have certain fixed costs such as personnel, and changes in the real estate market are monitored closely with operating expenses such as staffing levels managed and adjusted accordingly. Employee headcount decreased by 0.9% ³³ in 2025 from 2024. Personnel expenses as a percentage of total revenues were 26.5% ³⁴ in 2025, compared to 28.1% ³⁵ in 2024 and 34.1% ³⁶ in 2023. The company continually strives to enhance its competitive strengths and market position, including ongoing initiatives to manage its operating expenses.

The company believes its balances of cash, short-term investments and other readily marketable securities, along with cash flows generated by ongoing operations, will be sufficient to satisfy its cash requirements over the next 12 months and thereafter. Capital expenditures were approximately $5.6 million ³⁷ during 2025, and cash flows from operations are expected to fund the company's investment in technology and system development initiatives and hardware purchases. The company had 548 ³⁸ full-time employees and 26 ³⁹ part-time employees as of December 31, 2025.

The company paid total dividends of $10.56 ⁴⁰ per share in 2025, including a special cash dividend of $8.72 ⁴¹ per share. As of December 31, 2025, there was authority remaining under the share repurchase plan to purchase up to an aggregate of 413,177 ⁴² shares. The company anticipates making further purchases under this plan from time to time in the future, depending on factors such as the prevailing market price of the common stock, available cash, and existing alternative uses for such cash. During 2026, the maximum distributions the insurance subsidiaries can make to the company without prior approval from applicable regulators total approximately $28.7 million ⁴³.

The company faces headwinds from the current period of elevated mortgage interest rates, which has impacted the demand and pricing of real estate. Inflationary pressures, ongoing geopolitical and military conflicts, and changes in government regulations and policy, including as a result of policies implemented by the Trump administration such as the implementation of widespread tariff reform, have created additional volatile market conditions and uncertainties. The FOMC's monetary policy actions, including increasing the target federal funds rate from 2022 through 2023 followed by a gradual reduction beginning in 2024 and continuing into 2025, have influenced mortgage interest rates and real estate activity.

The company's business is concentrated in five states, with North Carolina, Texas, Georgia, South Carolina, and Florida representing 35.3% ⁴⁴, 27.1% ⁴⁵, 8.6% ⁴⁶, 8.1% ⁴⁷, and 6.4% ⁴⁸ of total premiums written in 2025, respectively. A decrease in the level of real estate activity in these states, whether driven by weak economic conditions, changes in regulatory environments, or other factors, could have a negative impact on financial results. The company also faces risks from potential reform of government-sponsored entities such as Fannie Mae and Freddie Mac, which could impact the demand for title insurance.

The company's business is highly dependent on real estate activity, which is cyclical and influenced by mortgage interest rates, economic conditions, and housing inventory. The filing notes that the current period of elevated mortgage interest rates has impacted demand and pricing of real estate. The company relies on five states for a significant portion of premiums: North Carolina (35.3% ⁴⁹), Texas (27.1% ⁵⁰), Georgia (8.6% ⁵¹), South Carolina (8.1% ⁵²), and Florida (6.4% ⁵³) in 2025, making it vulnerable to regional economic or regulatory changes. The reserve for claims of $38.1 million ⁵⁴ is subject to significant estimation uncertainty, and adverse deviation of actual claims experience from expected could materially reduce net earnings. The company faces fraud and defalcation risks from its network of title agents and approved attorneys, who handle large sums of money in trust. As of December 31, 2025, approximately $121.4 million ⁵⁵ of consolidated shareholders' equity represents net assets of subsidiaries restricted from being transferred to the parent company without prior regulatory approval, limiting the company's ability to pay dividends or fund growth.

Management's message emphasizes the cyclical and seasonal nature of the title insurance business and the company's focus on managing operating expenses through market fluctuations. The filing states that the company 'continually strives to enhance its competitive strengths and market position, including ongoing initiatives to manage its operating expenses.' Management highlights that the increases in net premiums written in 2025 compared to 2024 were 'primarily driven by increased activity levels and appreciation in average home prices.' The strategic priorities emphasized include managing operating expenses such as staffing levels in response to changes in the real estate market, evaluating nonorganic growth opportunities such as mergers and acquisitions, and maintaining a strong working capital position to manage cash resources through fluctuations in the real estate market.